GDP: Croatian Economy Grows More Than 2 Percent in the Second Quarter?

Thanks to the growth in consumption, industrial production, and investments, as well as the contribution of tourism, macroeconomists estimate that the Croatian economy grew again by more than 2 percent in the second quarter, but at a slower pace than in the previous quarter.

The Croatian Bureau of Statistics (DZS) will publish the first estimate of gross domestic product (GDP) for the second quarter on Wednesday, and eight macroeconomists who participated in a Hina survey estimate that the economy grew by an average of 2.3 percent compared to the same period last year. Their growth estimates range from 2.1 to 2.5 percent.

This will be the seventh consecutive quarter of GDP growth, but slower than in the previous quarter when the economy grew by 2.7 percent year-on-year.

Macroeconomists in the Hina survey state that the growth of the economy is primarily due to the strengthening of personal consumption, the largest component of GDP.

Strong Growth in Consumption and Tourism

This is indicated by the rise in retail trade for 22 consecutive months, which has not been recorded since the DZS began tracking these data. In the second quarter, retail sales increased by 3.3 percent compared to the same period last year.

“Personal consumption has been encouraged by good results in the tourist pre-season and seasonal improvements in the labor market, while the real disposable income is positively influenced by the continued decline in average prices of consumer goods,” states one of the macroeconomists in the Hina survey.

According to DZS data, the average net salary per employee in legal entities amounted to 5,686 kuna for June, which is a real increase of 2.4 percent compared to the same month last year.

In addition to the growth in salaries, the strengthening of consumption is attributed to deflation and low energy prices, which leads to an increase in the disposable income of citizens.

Macroeconomists also emphasize that excellent results in tourism were achieved in the first half of the year. In the first six months, the number of overnight stays by tourists in commercial accommodation facilities increased by 4.4 percent compared to the same period last year, reaching 16.5 million.

Tourism revenues could reach a record 8 billion euros this year, estimate macroeconomists, and “the spillover of positive effects from good results in tourism will reflect on the components of GDP, especially personal consumption,” it is stated in the Hina survey.

Industrial Production Growth Slowed

The strengthening of industrial production, which grew by 3.5 percent in the second quarter compared to the same period last year, will also positively impact GDP. However, this is slower than in the previous quarter when industry jumped by 6.8 percent, but production has been continuously growing for 17 consecutive months, marking its longest positive streak since 2007.

“We predict a slightly slower GDP growth than in the first quarter due to the slowing dynamics of industrial production growth and lower growth in export activity, along with a strengthening of goods imports amid increased domestic demand,” states one of the macroeconomists.

The trade exchange could have a neutral impact compared to previous quarters when strong export growth positively affected GDP. According to DZS data, the value of Croatian goods exports increased by 2.9 percent in the first six months compared to the same period last year, reaching 43 billion kuna.

This is primarily attributed to the growth of the European Union economy, Croatia’s largest foreign trade partner. Simultaneously, imports increased by 3.1 percent to 71 billion kuna.

Thus, the trade deficit of Croatia with foreign countries amounted to about 28 billion kuna, which means it was 3.4 percent higher than in the same period last year. “The dynamics of domestic economic growth could be slightly slowed by a somewhat higher base from last year in the observed period and the expected dynamization of goods imports,” it is stated in the Hina survey.

Continuation of Investment Growth

The continuation of growth in gross investments in fixed capital, which increased by 4.3 percent year-on-year in the previous quarter, the fourth consecutive quarter, should also positively impact GDP.

“GDP growth will be, among other things, supported by investment activity, partly stimulated by better utilization of funds from European funds,” states one of the macroeconomists in the Hina survey.

The growth of investments is also indicated by DZS data on the growth of the physical volume of construction work by 3.1 percent in the first five months of this year compared to the same period last year.

While investments are expected to stimulate GDP, analysts are not sure about the positive contribution of government spending, which increased by 0.6 percent year-on-year in the previous quarter.

“The contribution of government spending could be negligible this year, given the limited activity of the state due to the impact of temporary financing, and then the period of a technical government,” states one of the macroeconomists in the Hina survey.